What to Expect from Strategic Imperatives in IBM’s 3Q17 Earnings
IBM’s approach toward its Strategic Imperatives segment
Earlier in this series, we discussed the expectations from IBM’s (IBM) soon-to-be-announced 3Q17 results. We also discussed IBM’s dominance in the disruptive blockchain technology and its rapid adoption in various sectors.
Blockchain technology is seen as a growth catalyst by IBM and is pursued in the same light as its Strategic Imperatives segment. The tech giant aims to generate revenues from rapidly growing technologies including cloud, analytics, mobile, social, and security services. It is also hedging itself against the rapidly falling revenues of its legacy Server Hardware segment.
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Growth slowdown in Strategic Imperatives segment
IBM’s Strategic Imperatives segment’s revenues grew 7% on a constant currency basis to reach $8.8 billion in 2Q17. The segment grew 13% and 12% in 1Q17 and 2Q16, respectively. Although this growth has slowed down a bit in 2Q17, it is growing at an annual rate of 12% while there is no growth in its top-line revenues.
IBM reported in its 2Q17 earnings release that in the past 12 months, the segment’s revenues grew to $34.1 billion. From its 13% contribution in fiscal 2010, its contribution has grown to ~43.0% of the company’s overall revenues. The Strategic Imperatives segment could be worth ~$40.0 billion by the end of 2018.
However, slowing growth in this segment can’t be overlooked—especially when the company’s legacy businesses are sliding. IBM’s 3Q17 earnings would tell us if the slowing growth in this segment was a one-off occurrence or whether we should just expect slow growth in this segment.